PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA               Item No.      5c 
ACTION ITEM 
Date of Meeting     October 8, 2013 
DATE:    September 30, 2013 
TO:      Tay Yoshitani, Chief Executive Officer 
FROM:   Melinda Miller, Director Portfolio & Asset Management 
Rebecca Schwan, Real Estate Manager 
SUBJECT:  Term Lease with Kirby Offshore Marine Pacific LLC at The Maritime Industrial
Center 
ACTION REQUESTED 
Request Commission authorization for the Chief Executive Officer to execute a lease for a fiveyear
term  with two additional five-year options  according to the terms laid out in this
memorandum at a fair market rate, with Kirby Offshore Marine Pacific LLC at the Maritime
Industrial Center. 
SYNOPSIS 
Kirby Offshore Marine Pacific LLC (Kirby), headquartered in Staten Island, New York, is a
leading provider of marine transportation, distribution, and logistics services in the United States.
They are a water-dependent commercial maritime tenant. Kirby operates the nation's largest
fleet of inland tank barges and towing vessels. Kirby's service area spans America's inland
waterway network to include the Gulf Intracoastal Waterway, the Mississippi River System, the
Illinois River, the Ohio River and numerous other waterways. Kirby is a proven industry leader
in safety, customer service and environmental protection. Petrochemicals, refined products, black
oil products, and pressurized products are transported efficiently and safely from producers to
intermediaries to end users. 
Kirby operates 887 active inland tank barges, 161 active towing vessels and five fleets. They
currently employ 1,530 mariners with over 1,000 being on a boat at any given time. Their
training program is unique in the industry, and they take pride in the fact that they "grow their
own" wheelmen. They support the Port's mission to promote the maritime industry. 
In 2000, in efforts to curb an industry-wide employee shortage, they instituted the Kirby (Mate)
Pilot Program, which walks their own Tanker Men through the process of attaining their Master's
Licenses in the shortest amount of time. In 2005, they began to incorporate graduates of
maritime academies in their Pilot Program.
Kirby has been a tenant at the Maritime Industrial Center since 1998. This lease is a five-year
lease with two five-year options. There is an annual CPI increase and language for renegotiation 
of rent every five years. The lease consists of 8,640 square feet of office space, 9,047 square feet 

Template revised May 30, 2013.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 30, 2013 
Page 2 of 6 
of warehouse space, 21,250 square feet of improved land, and 356 lineal feet of moorage. Rates
are based on comparable lease rates for Class C office space, warehouse space and land in the
Ship Canal and surrounding sub-markets. 
BACKGROUND 
Purchased from the Coast Guard in 1993, the Maritime Industrial Center was redeveloped in
1998 to accommodate marine-related tenants and tenants that support the commercial fishing
fleet.  This facility is comprised of 6.39 acres, 4.03 of which are landside.   The Maritime
Industrial Center has several mixed use buildings, along with outside fenced storage. The main
building is the A-1 Building and houses our anchor tenant Kirby. In addition to the office space
that they lease in this building, they also lease warehouse space, yard space and moorage at the
facility.
MARKET CONDITIONS 
Office Market 
In speaking with local brokers at Cannon Commercial RE and CB Richard Ellis, what we are
seeing is more of a demand for high quality space and less for Class B and C office space.
According to reports from CBRE and Cannon Commercial RE, tenants had been lured away by
low rates and concessions in the Central Business District. Until recently, rates had been
dropping but are now beginning to stabilize. It is difficult to retain tenants in the Ship Canal
submarket unless they are maritime related or reside in the area.
Although most of the quarterly reports do not report on Class B and C rent in this submarket, we
have confirmed with local brokers that Kirby's office rate of $15.25/sf/year, triple net (NNN) is
on the high end of the range of what landlords are getting to fill Class C office space. We have
also taken a look at asking rates in surrounding submarkets such as Ballard and Queen Anne. 
CoStar reporting confirms that this rate is within the range for comparable buildings. We
recently amended a lease with InnerSea Discoveries in the Nordby Building at Fishermen's
Terminal effective February 1, 2013, and are getting $14.75/sf/year/NNN for the additional
office space.  At the Wharf Building across the street from Fishermen's Terminal a recent
comparable showed a Class C office lease done at $16.00/sf/year, Gross. (Operating Costs @
$5.00/sf/year)
This submarket has taken a hit in recent years but is slowly bouncing back. With rents dropping
and landlords offering concessions in the Central Business District, many non-maritime tenants
have left this area for nicer space downtown.
Industrial Market 
In the Seattle Industrial Market, most of the tenant activity is occurring in the south end. In
general, the Ship Canal submarket, Ballard in particular, is an extremely tight market. Many of
the buildings are owned and occupied by businesses that have been there for decades.  In
addition, the increased development in the submarket in recent years has resulted in a decline in

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 30, 2013 
Page 3 of 6 
industrial inventory. According to brokers in the area, rates for warehouse space in the 5,000-
10,000 square foot range are getting deals done around $6.00 -$7.80/sf/year. Land is ranging
from $1.80 - $3.00/sf/year. Although there is no clear broker reporting on industrial properties in
the Ship Canal/Ballard market, local brokers confirm that warehouse space and vacant land are
scarce.
We recently had an appraisal done by McKee & Schalka on the FVO Marine Ways Shipyard at
Fishermen's Terminal. Land came out at $2.40/sf/year and warehouse ranged between $6.00 - 
$7.80/sf/year. The rates we are getting for this lease for warehouse and land are at/above market
according to the appraisal done in late 2012. We are getting $7.00/sf/year for the warehouse and
$3.33/sf/year for the land.  This falls in line with what local brokers are reporting for this
submarket. There is no free rent or broker fees associated with this lease. The Port will be
contributing $20,000 in tenant improvement work.
TERMS OF PROPOSED LEASE 
The major elements of the proposed term lease are outlined below: 
Term:               Five years plus two additional five-year options. 
Rent Commencement Date:  November 1, 2013. 
Premises:              Premises consists of 8,640 square feet of office space in the A-1
Building, 9,047 square feet of warehouse space located in the A-1
Building and in three smaller warehouse buildings in the yard,
21,250 square  feet of improved land and 356 lineal feet of
submerged land.
Base Rent:             8,640 square feet of office @ $15.25 per square foot per year =
$10,980.00 per month. 
9,047 square feet of warehouse @ $7.00 per square foot per year =
$5,277.41 per month. 
21,250 square feet of improved land @ $3.33 per square foot per
year = $5,896.88 per month. 
356 lineal feet of moorage @ $155.25 per square foot per year =
$4,605.75 per month.
Total Monthly Rent of $26,760.04. 
Annual Rent of $321,120.48. 
Plus Leasehold Tax. 
Rent Increases:          Base rent shall be subject to annual adjustments in proportion to
the percentage change in the Consumer Price Index for all Urban
Consumers. In addition, rent shall be subject to renegotiation at

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 30, 2013 
Page 4 of 6 
the end of the 60th month following the commencement of this
lease and every 60 months thereafter. 
Rent Abatement:        None 
Operating Expenses:      Lessee is responsible for the utilities and all the repairs and
maintenance within their premises, with the exception of the roof,
foundation and structure of the A-1 Building. 
Port Improvements:       Port will 1) Provide for hook up for washer and dryer in A-1 office
space, 2) Repair roof leak in warehouse outbuilding in yard area
and 3) Repair splitting bull rail in submerged area for a total of
$20,000.
Security:              Lessee shall provide a cash deposit, corporate surety company
bond or irrevocable stand-by letter of credit in the amount of
$142,000, which is equal to six months base rent over the term of
the lease. 
Insurance/ Liability:       $2 million General Liability. 
Assignment/Sublease:     Conditioned on the Port's prior written consent. 
FINANCIAL IMPLICATIONS 
Budget/Authorization Summary              Capital     Expense   Total Project 
Original Budget                            $0          $0          $0 
Previous Authorizations                       $0          $0          $0 
Current request for authorization                  $0       $20,000       $20,000 
Total Authorizations, including this request           $0       $20,000       $20,000 
Remaining budget to be authorized               $0          $0          $0 
Total Estimated Project Cost                    $0      $20,000      $20,000 
Project Cost Breakdown                     This Request       Total Project 
Tenant Improvement Allowance                  $20,000          $20,000 
Leasing Broker Commission                        $0              $0 
Other                                          $0               $0 
Total                                        $20,000            $20,000 
Budget Status and Source of Funds 
The 2013 Operating Budget included a $30,000 budget for Kirby Tenant Improvements. The
proposed funding of $20,000 will result in a favorable operating expense variance in 2013. 
The source of funds for these tenant improvements will be the Real Estate General Fund.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 30, 2013 
Page 5 of 6 
Financial Analysis and Summary 
CIP Category       N/A 
Project Type        N/A 
Risk adjusted       7.0% 
discount rate 
Key risk factors       Risk of tenant default, which is partially mitigated by: 
Security deposit in the amount of $142,000 
Good standing status as a current tenant of the Port 
Project cost for       $20,000 
analysis 
Business Unit (BU)    Portfolio Management, Real Estate Division 
Effect on business     The impact to Net Operating Income (NOI) and NOI After
performance        Depreciation resulting from this lease is shown below. 
NOI (in $000's)       Year 1    Year 2    Year 3    Year 4    Year 5
Revenue          $339    $349    $360    $371    $382
Expenses         ($38)    ($19)    ($19)    ($20)    ($20)
NOI            $301    $331    $341    $351    $361
Depreciation          $0       $0       $0       $0       $0
NOI After Depreciation   $301     $331     $341     $351     $361
Revenue is inclusive of estimated operating expense
reimbursements collected from the tenant. 
Expenses are inclusive of both estimated recoverable operating
expenses and a tenant improvement allowance. 
IRR/NPV          NPV   IRR  Payback
(in $000's)   (%)    Years
$1,418    NA     1
The NPV is based on incremental net cashflows generated by the
lease and does not factor in the underlying value of the land and
improvements. The basis for establishing the market rate for the
lease is described in the memo under "Marketing Conditions." 
ALTERNATIVES AND IMPLICATIONS CONSIDERED 
Alternative 1)  Not enter into a lease with Kirby. Port staff could advertise through a request
for proposal for a water dependent, maritime user. This would be risky, as it is difficult to know
if another user would want the same configuration of space that Kirby currently uses and we
could end up with no submitters. Even if we did receive proposals from submitters other than
Kirby, they could be at less attractive terms for the Port and we could end up having to invest
Port dollars for more extensive improvements than the Kirby lease requires and other possible
concessions. The rates for this lease are at or above market and it is not recommended that the

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
September 30, 2013 
Page 6 of 6 
Port risk getting less revenue. The Kirby lease provides annual revenue of $321,000 and the
Port's investment is $20,000. This is not the recommended alternative. 
Alternative 2)  Not enter into a new lease with Kirby. Port staff could advertise through a
request for proposal and pursue a non-maritime tenant for the premises. In doing so the Port
would lose its anchor tenant that supports the Port's mission of promoting and supporting the
maritime industry. Kirby would have to find another location, which would be extremely
difficult as industrial space with adjacent moorage is scarce in this submarket. Should the Port
not receive submittals for a non-maritime user, the premises could remain vacant for an unknown
time period resulting in loss of revenue to the Port. Should the Port receive submittals to the
request for proposal, these submittals could be at less attractive terms for the Port and we could
end up having to invest Port dollars for improvements, and other concessions. The Kirby lease
provides annual revenue of $321,000 and the Port's investment is $20,000. This alternative is 
also at odds with the original mission when the Port developed the facility in 1998, which was to
accommodate marine related tenants and tenants that support the commercial fishing industry.
This is not the recommended alternative. 
Alternative 3)  Execute proposed lease with Kirby.  Proceeding with the execution of the
proposed lease would secure a long-standing Port customer and commercial maritime tenant for
at least five years.  Kirby directly supports the maritime industry by providing thousands of
maritime jobs and a customized training program that brings a new generation of workers into
the industry. By executing this lease the Port is avoiding the time and cost associated with
sending out a request for proposal, which from experience can take months to complete and
demands a significant amount of time and resources from Port staff. Execution of this lease falls 
in line with the purpose of the development of the Maritime Industrial Center in 1998, which was
to accommodate and support marine-related tenants. The rates are at or above market, and the 
lease provides the Port annual revenue of $321,000 with a nominal Port investment of $20,000,
no broker fees and no free rent. This is the recommended alternative. 
ATTACHMENTS TO THIS REQUEST 
PowerPoint presentation. 
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS 
None.